Further Signs Of Funds Flowing Back To Europe

Includes: EU
by: John M. Mason

There continue to be signs that the money that escaped Europe during its financial crisis and fled to the United States is returning to the continent.

In the Financial Times we read the headlines "Foreign Issuance of Bonds in Euros at Highest Since Crisis."

The numbers are impressive: "So far this year €35.9 billion of euro-dominated bonds have been issued by non-European corporates, up 47 percent on the same stage last year, and surpassing the previous record of €34.1 billion set for the corresponding period in 2007…."

Besides the rising financial confidence on the European continent, the relative change in interest rates since this spring has been a big factor. Around May 1, 2013, the yield on the 10-year US Treasury bond was around 1.63. Currently, the interest rate on these securities trades around 2.75 percent and did reach a high of almost 3.00 percent in early September.

The bell-weather interest rate on the European continent is the yield on the 10-year German bund. In late April and early May, this yield was around 1.20 percent. Recently, this interest rate has risen to around 1.90 percent. Whereas the rate in the United States has risen by over 100 basis points at the present time, the rate on the German bund has risen only about 70 basis points.

And, there has been greater volatility in the United States market due to unclear signals coming from officials in the Federal Reserve System concerning the "tapering" of securities purchases and the uncertainty surrounding the budget of the federal government and the debt ceiling.

So, given that the financial markets in Europe have seemed more stable than those in the United States and given that these issuers could pay "50 to 60 basis points less in interest than any they could have issued in the US bond market" the movement to European markets makes sense.

In addition, the Financial Times article goes on to explain that the number of Asian-Pacific companies issuing euro-denominated bonds has risen substantially.

Frazer Ross, the managing director of corporate debt syndicate at Deutsche Bank, is quoted in the article as saying that Asian issuers "are beginning to realize that as well as diversifying your investor base, Europe is open for good volume and good size at a very competitive price."

Bottom line: as I have reported for some time now, a lot of money is flowing out of the United States and it appears as if a good portion of the funds are flowing back into Europe. European financial markets have settled down, confidence is rising that the economic recovery of the continent is proceeding, and with the re-election of Angela Merkel accomplished there is renewed hope that European leaders can get on with the re-structuring of their political and banking worlds.

If Asian-Pacific companies are now discovering the possibilities that are available to them in European financial markets, this may be very good timing for the European Union. And, a part of this potential growth for the EU may be assisted by the incompetency of the government in the United States ... and I'm including all parties in this claim.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.